What Is Joint Venture Development Finance?
**Joint venture (JV) development finance** funds property development projects undertaken by two or more parties working together. Instead of a single developer handling everything - land, equity, construction management, and sales - a JV allows partners to combine their respective strengths to deliver projects that might be beyond any single party's capability.
JVs are common across the UK development market, from small partnerships between a landowner and a builder to institutional arrangements between major housebuilders and investment funds. The financing of these partnerships requires careful structuring to satisfy both the partners and the lender.
This guide covers the main JV structures, how [development finance](/services/development-finance) lenders approach JV applications, and the practical considerations for setting up a successful development partnership.
Why Developers Form Joint Ventures
Combining Complementary Skills
The most successful JVs bring together partners with different but complementary strengths:
- Landowner + Developer - the landowner contributes the site, the developer contributes construction expertise and project management
- Experienced Developer + First-Timer - the experienced developer provides track record and market knowledge, the first-time developer contributes capital and energy
- Developer + Investor - the developer manages the project, the investor provides equity capital
- Builder + Land Finder - a construction firm partners with someone who sources and secures development opportunities
Accessing Larger Projects
JVs allow developers to take on projects that would be too large for them individually:
- More equity available when pooled from multiple partners
- Broader experience satisfying lender requirements
- Shared risk on larger, higher-value schemes
- Access to land or opportunities through the partner's network
Spreading Risk
Development carries inherent risks - construction cost overruns, planning complications, market movements. A JV spreads this risk between partners rather than concentrating it on one individual or entity.
**Key Takeaway:** The best JVs are formed when each partner brings something the other lacks. If both partners bring the same skills and resources, there is less reason for the partnership and more potential for conflict.
Common JV Structures
SPV Limited Company
The most common structure for development JVs is a **Special Purpose Vehicle (SPV)** - a limited company set up specifically for the project. Key features:
- Partners are shareholders in the SPV, with shares reflecting their agreed profit split
- The SPV purchases the land, borrows the development finance, and manages the project
- Partners may be directors of the SPV
- Personal guarantees are provided by all directors/shareholders to the lender
- On completion, profits are distributed according to the shareholders' agreement
**Advantages:**
- Clean legal structure
- Limited liability (though personal guarantees extend exposure)
- Simple for lenders to assess and lend to
- Tax-efficient for development profits (Corporation Tax rather than Income Tax)
- Easy to wind up after the project completes
LLP (Limited Liability Partnership)
Some JVs use an **LLP** structure, particularly where the partners want profits to be taxed in their individual hands (or through their own corporate structures) rather than at SPV level.
**Advantages:**
- Tax transparency - profits taxed at partner level
- Flexible profit-sharing arrangements
- Limited liability for partners
**Disadvantages:**
- Less familiar to some development finance lenders
- More complex legal documentation
- May limit lender choice
Contractual JV
A **contractual JV** involves a written agreement between the parties without creating a separate legal entity. One partner (typically the landowner or developer) holds the property and borrowing in their own name, with the other partner's involvement governed purely by the JV contract.
**Advantages:**
- Simpler setup, lower legal costs
- May be suitable for smaller projects
**Disadvantages:**
- Less protection for the non-owning partner
- Lender only has a relationship with the borrowing entity
- Potential disputes if the relationship breaks down
- Generally not recommended for larger projects
**Key Takeaway:** The SPV limited company is the default and preferred structure for most development JVs. It provides clarity for the lender, limited liability for the partners, and a clean structure that can be wound up on project completion.
The JV Agreement
The **JV agreement** (or **shareholders' agreement** if using an SPV) is the most important document in the partnership. It should cover:
Capital Contributions
- How much equity each partner contributes
- When equity is required (upfront vs staged)
- What happens if additional equity is needed mid-project
- Interest on capital contributions (if applicable)
Roles and Responsibilities
- Who manages the day-to-day project? ("development manager")
- Who makes key decisions? (pricing, contractor selection, design changes)
- What decisions require unanimous agreement vs majority/single partner authority?
- Who liaises with the lender, monitoring surveyor, and professional team?
Profit and Loss Sharing
- How are profits split? (equal shares, proportional to equity, hybrid arrangements)
- Are there any priority returns? (e.g., one partner receives their equity back first)
- What is a "development management fee" and who receives it?
- How are losses shared?
Decision-Making Framework
- Day-to-day operational decisions
- Material decisions (above a certain cost threshold)
- Strategic decisions (changes to the scheme, pricing, exit strategy)
- Dispute resolution mechanism
Exit and Dissolution
- When and how is the SPV wound up?
- How are unsold assets dealt with?
- What happens if one partner wants to exit early?
- Buy-out provisions
- Tag-along and drag-along rights
Deadlock Resolution
- What happens if partners cannot agree?
- Mediation and arbitration provisions
- "Shotgun" or "Russian roulette" clauses (where one partner can offer to buy the other out at a stated price)
**Key Takeaway:** Invest in a comprehensive JV agreement drafted by an experienced property solicitor. The time and cost of getting this right upfront is negligible compared to the cost and disruption of a partnership dispute during a live development project.
How Lenders Assess JV Applications
All Partners Are Assessed
Development finance lenders conduct due diligence on **all JV partners**, not just the lead developer:
- Personal financial position of each partner/guarantor
- Credit history of each individual and entity
- Development experience of all parties
- Source of equity for each partner's contribution
- AML (Anti-Money Laundering) checks on all parties
Personal Guarantees
Lenders typically require **personal guarantees** from all partners. This means each partner is personally liable for the full facility, not just their proportional share. This is a significant commitment and should be understood by all parties before proceeding.
Some lenders may accept **limited guarantees** (capped at a specific amount or percentage) for passive investors, but this is not standard.
Experience Assessment
For JV applications, lenders assess the combined experience of the partnership:
- If one partner has strong development experience, this may satisfy the lender's track record requirement even if the other partner is new to development
- The experienced partner should be actively involved in the project (not just a sleeping partner)
- Lenders will want to understand who is managing the project day-to-day
Legal Structure Review
Lenders review the JV structure and agreement to understand:
- Ownership and control of the SPV
- Decision-making authority (particularly regarding the development and the loan)
- Exit provisions and dissolution arrangements
- Any conflicts of interest
Landowner-Developer JVs
A common JV structure is between a **landowner** who has a site with development potential and a **developer** who has the expertise and resources to build it out.
How It Works
- The landowner contributes the site to the JV (or the SPV purchases the site from the landowner at an agreed price)
- The developer arranges development finance and manages the construction
- The developer contributes equity for their share of the project costs
- On completion, profits are shared according to the JV agreement
Key Considerations
- Land valuation - how is the land valued for the JV? Market value, agreed price, or residual land value?
- Land contribution as equity - the landowner's land contribution counts towards the equity requirement, reducing the need for cash equity
- Profit split - typically reflects the relative contributions (land value vs development expertise and cash equity)
- Tax implications - the method of contributing land (sale to SPV vs injection as capital) has different tax consequences
**Example:**
- Land value: £500,000
- Total project costs (including land): £1,800,000
- GDV: £2,700,000
- Development finance: £1,750,000 (65% LTGDV)
- Cash equity required: £550,000
- Landowner contribution: £500,000 (land)
- Developer contribution: £550,000 (cash)
- Projected profit: £600,000
- Profit split: 45/55 (landowner/developer)
Investor-Developer JVs
Another common model pairs a **passive investor** providing equity capital with an **active developer** managing the project.
How It Works
- The developer identifies the opportunity and prepares the project appraisal
- The investor provides all or most of the equity capital
- The developer manages the entire project
- Development finance covers the balance of funding
- Profits are shared, with the developer typically receiving a development management fee plus a profit share
Typical Structures
- Development management fee: 5-10% of build costs paid to the developer for managing the project
- Priority return: The investor receives their equity back first, plus a priority return (e.g., 8-12% pa)
- Profit share: Remaining profits split between the investor and developer (commonly 50/50 or 40/60)
Lender Perspective
Lenders are comfortable with investor-developer JVs provided:
- The developer has adequate experience
- Personal guarantees are provided by all parties
- The investor's source of funds is verified
- The JV agreement is clear on roles and authority
Common JV Pitfalls
Inadequate Legal Documentation
The most common and most serious pitfall. Partners who rely on verbal agreements or informal understandings risk costly disputes when disagreements arise. Always invest in a proper JV agreement.
Mismatched Expectations
Partners may have different expectations about involvement level, decision-making authority, or timescales. These differences should be explicitly discussed and documented before the JV is formed.
Unequal Commitment
If one partner is fully committed to the project while the other is passive or distracted, the active partner may feel they are doing all the work for a shared reward. Address this through the development management fee structure and clear role definitions.
Personal Guarantee Misunderstanding
All partners must understand that personal guarantees typically cover the **full facility**, not just their proportional share. A 50/50 partner is not liable for just 50% of the loan - they are potentially liable for 100%.
Exit Disagreements
Partners may disagree on pricing, timing of sales, or whether to sell or retain completed units. Build decision-making frameworks and dispute resolution mechanisms into the JV agreement.
Tax Considerations
JV tax treatment varies by structure and should be discussed with a qualified accountant:
- SPV limited company: Development profits taxed at Corporation Tax rates. Extracting profits to individuals incurs further tax (dividends or salary)
- LLP: Profits pass through to partners and are taxed at their individual or corporate rates
- Contractual JV: Profits taxed in the hands of the legal owner, with the JV partner's share treated according to the contract
Stamp Duty Land Tax implications of transferring land into a JV structure should also be considered.
Use our [development finance calculator](/calculators/development) to model the economics of your JV project.
Summary
Joint venture development finance enables partnerships that combine complementary skills, capital, and experience to deliver property development projects. The SPV limited company is the standard structure, with a comprehensive shareholders' agreement governing the relationship between partners.
Lenders assess all JV partners and require personal guarantees, but are comfortable with well-structured partnerships where roles and experience are clearly defined. The key to a successful JV is choosing the right partner, documenting the arrangement properly, and maintaining clear communication throughout the project.
If you are considering a JV development project and want to discuss your financing options, [contact our team](/contact) for expert guidance.
*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*